By Ben Levisohn

That’s what worries Citigroup’s Joaquin Cottani. In a report today, he says that while many investors expect that the worst of the global financial crisis has passed, Latin America is not out of the woods. He writes:

Unlike in the 2010 recovery, when activity and prices of nontradables, such as retail and construction, expanded together, it is possible that, this time round, inflation will remain high, but nontradable production starts to decelerate adding to the drag in manufacturing, agriculture and other tradable activities. Unfortunately, this is not going to change any time soon since, due to the combination of semi-pegged nominal exchange rates and consumer inflation hovering around the upper ends of the target bands, real exchange rates will continue to appreciate, except temporarily during peaks of global risk aversion.

To make matters worse, Latin American economies have lost their competitiveness because of high wages. And the lack of roads and other infrastructure will also impede growth, Cottani says. Economic growth will become driven by consumption, rather than exports, and the current account deficit will grow.

The upshot:

Eventually, confidence will erode causing capital inflows to decline and exchange rates to depreciate. At this point, growth deceleration and inflation acceleration (already a reality in Brazil and Argentina) could become more generalized.

That could be bad news for investors who have loaded up on top performing emerging markets like Colombia, Peru and Mexico.

The Market Vectors Colombia (COLX) exchange traded fund has returned 15.7% during the last 12 months, the iShares MSCI All Peru Capped Index ETF (EPU) has returned 16.4% and the iShares MSCI Mexico Investable Market Index ETF (EWW) has returned 32.1%.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.